Ancillary costs when buying an apartment – how much will your apartment really cost?
Purchasing an apartment involves quite a few ancillary costs which many people are unaware of. Even if the price tag of an apartment seems attractive, remember that it is not the full price you will have to pay. On top of the base price there are also taxes, brokerage costs, attorney’s fees, and sometimes also contractor fees, renovation costs, and more. Clearly, the costs when buying an apartment need to be taken into account, but you should also know that in many cases it is possible to significantly reduce some of them. Below is an explanation of the subject by an attorney from our firm who specializes in real estate law.
Our law firm, with offices in Jerusalem and Tel Aviv, specializes in real estate law. Our firm provides consultation and legal representation on various issues, such as negotiations when purchasing real estate, dealing with real estate taxation issues, rental contracts, registration of property rights, and more.
Ancillary costs when buying an apartment – not everything is predetermined
Purchasing an apartment is no small matter these days. For many, it is a distant dream. The increase in apartment prices in Israel, the current level of wages, the number of monthly salaries required to purchase an apartment today — these and other factors are why few people are actually able to purchase an apartment. If you are one of the lucky few or are simply looking into your options regarding acquiring an apartment of your own, you must have spent many hours trying to calculate the full cost of buying an apartment. This is because aside from the price of the apartment itself, there are numerous additional costs.
The ancillary costs of buying an apartment include, among others, brokerage fees, financing costs (mortgage), various taxes, attorney’s fees, and more. It must be stressed that these costs are not set in stone. That is, they are subject to reduction as a result of proper planning and thorough examination of the legal situation. This is one of the issues handled by attorneys specializing in real estate law. They can assist you by conducting a comprehensive examination which may lead to a reduction in the desired apartment’s price. Below we will present key examples of the costs associated with buying an apartment.
Purchase tax
Although Israelis are accustomed to paying taxes on income, not on expenses, an apartment falls into a special category which sets it apart from other assets. Accordingly, the Real Estate Taxation Law requires that a tax be paid upon purchasing an apartment. However, it is not a uniform tax like VAT (Value-Added Tax), but a variable tax (similar to income tax). Tax levels vary according to a number of criteria, such as the number of apartments owned by the buyer (is this their first apartment or do they own additional apartments?), the apartment’s value, and more.
In some cases, particularly when buying your first apartment, the purchase tax will be 0%. However, it is important to assess the situation thoroughly in order to avoid future tax charges due to non-payment. Furthermore, apart from the tax levels mentioned above, the law defines various criteria for people entitled to discounts and tax exemptions when buying an apartment. Those eligible for discounts and tax exemptions are, among others, invalids or people with disabilities, new immigrants, people who received an apartment as a gift from family members, people who inherited an apartment, and more. We recommend carefully checking if you can possibly reduce the tax to be paid, based on the legally defined criteria.
Attorney’s fees
As mentioned above, it is of paramount importance to seek the help of an attorney specializing in real estate law, starting from the earliest stages of buying an apartment. An attorney specializing in the field can thoroughly examine the details of the transaction and verify important details, such as the property’s registered ownership, the legality of the transaction, and more. Unfortunately, there are many scams in the world of real estate transactions. An attorney can help avoid them by accompanying the buyer throughout the whole process, until the apartment is registered in the buyer’s name. The attorney’s fees vary from case to case and can reach about 2% of the transaction value.
Brokerage fees
Due to the shortage of available apartments in Israel, real estate agents are often hired to locate apartments which meet the buyer’s needs. The real estate agent’s experience may be valuable not only for the task of locating a suitable apartment, but also for negotiations when haggling over the final price of the apartment. Hiring the services of a real estate agent involves paying brokerage fees, which may reach up to 3% of the apartment’s value. Here too, the cost depends on a number of variables.
Financing costs (mortgage)
As mentioned above, few people can afford to buy an apartment outright in Israel today. The vast majority of buyers must finance the purchase with the help of a third party, usually by taking out a mortgage. Unlike other loans, which usually amount to smaller sums over shorter periods of time, mortgages are subject to many changes depending, among other things, on interest rates and the overall level of inflation in the economy. Failure to correctly calculate these variables may lead to paying significant sums of money which could have been avoided. Therefore, it is important to meticulously examine the terms of a mortgage in advance, before signing the mortgage agreement.
Additional costs of buying an apartment
Along with the costs we mentioned, which are relevant to almost every apartment purchase, there are additional costs, which may vary from case to case. In cases where an apartment is purchased from a contractor, the payments to the contractor are linked to a unique index which tracks the cost of building materials, called the residential building price index. It is affected by various price fluctuations, often increasing the cost of the apartment’s purchase.
In some cases, negotiating with the contractor can reduce these costs by linking them to the consumer price index. Besides the above-mentioned costs, there are other common expenses, such as the cost of renovating the apartment and its infrastructure. The numerous expenses involved in buying an apartment often require the assistance of an expert attorney at various stages in the process, in order to make sure that the transactions associated with the purchase are legally sound and worthwhile for the buyers.
Contact an attorney specializing in real estate law
In this article we explained in detail about the costs associated with buying an apartment. If you have any other questions or need assistance on the matter, an attorney specializing in real estate law from our office will be happy to provide you with professional and comprehensive service. You can contact our firm’s offices in Jerusalem and Tel Aviv at the phone numbers and email address below.
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